Despite being a growing reservoir of funds under management, this critically important pool of capital is confronting mounting problems collating and disseminating key data in a timely manner.
The ratings house is pinning its growth strategy on a revamped methodology that increases the emphasis on governance to 25 per cent – a timely move considering APRA’s proposed reforms.
… as ESG growth lifts demands on data and analytics
David Braga
The growing importance of environment social and governance (ESG) issues in funds management has also increased demand for better data and analytics from securities servicing firms.
David Braga, the managing director of BNP Paribas Securities Services in Australia and New Zealand, told a briefing last Friday that sustainability had become a “new pillar” of risk analytics.
“Historically, the industry has focused on ‘G’, through the use of custody services such as proxy voting, but now the ‘E’ and the ‘S’ are also coming to the fore,” he said.
Public disclosure by some funds, such as the Sydney University endowment, shedding investments in coal and super funds, such as HESTA, selling out of Transfield because of sustainability concerns over its detention centre business, have prompted increased demand for information about underlying holdings of funds and their managers.
Braga said the proposed “look-through” regulation from APRA, which is still being discussed with the industry, would further add to demand. This regulation would make disclosure of all underlying assets of APRA-regulated funds compulsory. Debate is continuing about when the disclosure should be made and also if it will include underlying assets of trusts and offshore alternatives managers.
“We offer the ability to do a lot of risk analytics,” he said. “We don’t advise on the decisions; we give them the tools and capabilities to implement them.”
BNP Paribas has developed a sophisticated process to benchmark an ESG framework for funds and managers. This comes under three main headings: “controversies”, carbon footprint and business involvements.
Controversies, of which there are 29 categories, refer to measurement and information on human rights abuses, the use of child labour and such issues. Carbon footprint, of which there are 24 indicators, covers a range from policy positions to financial outcomes. Business involvement includes such things as revenue from armaments manufacture or gambling.
“The challenge for trustees is around the subjectivity of the topic,” Braga said. “The challenge for us to source new benchmarks to establish what a position looks like.”
A survey of super funds conducted by BNP Paribas and AIST this year showed that two-thirds of trustees expected that the role of ESG would lead to an increase in their monitoring operations within the funds.
